Components of the Balance Sheet: A balance sheet consists of three parts: assets, liabilities, and net worth. Your assets include everything you own that has monetary value.
Your liabilities are your debts—amounts you owe to others. Your net worth is the rupee amount left when what is owed is subtracted from the rupee value of what is owned—that is, if all the assets were sold at the listed values and all debts were paid in full. Your net worth is the true measure of your financial wealth.
What Is Owned—Assets The assets section of the balance sheet lists items valued at their fair market value—what a willing buyer would pay a willing seller, not the amount originally paid or what it might be worth a year from now. It is useful to classify assets as monetary, tangible, or investment assets.
Monetary assets (also known as liquid assets or cash equivalents) include cash and low-risk near-cash items that can be readily converted to cash with little or no loss in value such as checking and savings accounts. They are primarily used for maintenance of living expenses, emergencies, savings, and payment of bills.
Tangible (or use) assets are personal property whose primary purpose is to provide maintenance of one’s everyday lifestyle. Tangible assets, such as furniture and vehicles, generally depreciate in value over time.
Investment assets (also known as capital assets) include tangible and intangible items that have a relatively long life and high cost and that are acquired for the monetary benefits they provide, such as generating additional income and appreciation (or increasing in value). Examples include stocks and bonds. Investment assets generally appreciate and are dedicated to the maintenance of one’s future level of living.
Following are some examples of each kind of asset.
- Cash (including cash on hand, checking accounts, savings accounts, savings bonds, certificates of deposit, and money market accounts)
- Tax refunds due.
- Money owed to you by others.
- Automobiles, motorcycles, boats, bicycles.
- House, condominium, mobile home.
- Household furnishings and appliances.
- Personal property (jewelry, furs, tools, clothing)
- Other “big ticket” items.
- Stocks, bonds, mutual funds, gold, partnerships, art, etc.
- Life insurance and annuities (cash values only)
- Real property (and anything fixed to it)
- Personal and employer-provided retirement accounts.